You can save on your taxes with several different tax credits. If you owe the IRS, you can figure how much you owe, then deduct the amount of your credits before you pay your taxes. If there is a balance after your credits, you will still have taxes to pay, but not as much. However, if the credit is more than you owe, you could end up with a refund.
There are two types of tax credits that will help with the cost of higher education. They are the American Opportunity Relief and the Lifetime Learning Relief.
American Opportunity Relief
This is an expanded version of the Hope Education Assistance Tax Relief that was put in place before this particular credit. It was expanded by the 2009 stimulus bill that was designed to help the economy get back on track. The American Opportunity Tax Relief is in the amount of $2500.00 and you can take the claim on the first four years of college or university for all costs. It is also 40% refundable, meaning, $1000.00 can be refunded to the taxpayer. All amounts above the $1000.00 will be transferred and used to offset any future tax liabilities. In order to qualify for this credit, the taxpayer must earn no more than $90,000.00 per year, or $180,000.00 for joint returns. The Hope Tax Relief was not refundable, so this new credit is an improvement on this older credit. The cap on the Hope Tax Relief Credit was $1800.00 and the maximum amount that could be earned was lower.
The American Opportunity Tax Relief is only a temporary credit which ends in December of 2012. Anyone wishing to take this credit must do so before the end of 2010. Unless Congress approves an extension, which is not likely, taxpayers must take action as soon as possible. The Hope Tax Relief will also end in 2012.
Lifetime Learning Relief
The Lifetime Learning Tax Relief is good for the taxpayer’s life. It can be used beyond the four years of education, so if you are looking into graduate school, this tax credit can be claimed. It includes undergraduate, graduate and post-graduate fees along with other career training and studies. The Lifetime Learning Tax Relief has less limitations than the American Opportunity Credit. The credits are more complex and the rules to qualify are a little more strict.